Member Sign In

You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating indiv idual securities.

If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.

5 Stocks to Buy on New Analyst Coverage

The importance of new analyst coverage is evident from the extensive data it unearths for investors. Analysts are privy to vital information and are crucial to investment decisions.

Coverage initiation of a stock by analyst(s) usually portrays higher investor inclination. Investors, on their part, often assume that there is something special in a stock to attract analysts to cover it. In other words, they believe that the company coming under the microscope definitely holds some value.

Do analysts create value for companies by initiating coverage? Of course they do because they play an important intermediary role with their extensive access to relevant data. Many investors have profound trust in the research work done by analysts as they fear that lack of information while researching on their own might result in inefficiencies.

Obviously, stocks are not randomly chosen to cover. A new coverage on a stock usually reflects a reassuring future envisioned by the analyst(s). At times, increased investor focus on a stock motivates analysts to take a closer look at it. After all, who doesn’t like to produce something that is already in demand? Hence, we often find that analysts’ ratings on newly added stocks are more favorable than their ratings on continuously covered stocks.

Needless to say, the average change in broker recommendation is more preferable than a single recommendation change.

Impact on Stock Price

The price movement of a stock is generally a function of the recommendations on it from new analysts. Stocks typically see an upward price movement with a new analyst coverage compared to what they witness with a rating upgrade under an existing coverage. Positive recommendations – Buy and Strong Buy – generally lead to a significantly positive price reaction than Hold recommendations. On the contrary, analysts hardly initiate coverage with a Strong Sell or Sell recommendation.

Now, if an analyst gives a new recommendation on a company that has very few or no existing coverage, investors start paying more attention to it. Also, any new information attracts portfolio managers to build a position in the stock.

So, it’s a good strategy to bet on stocks that have seen increased analyst coverage over the last few weeks.

Screening Criteria

Number of Broker Ratings now greater than the Number of Broker Ratings four weeks ago (This will shortlist stocks that have recent new coverage).

Average Broker Rating less than Average Broker Rating four weeks ago ('Less than' means 'better than' four weeks ago).

The number of increased analyst coverage and improving average rating are the primary criteria of this strategy, but one should consider other relevant parameters to make the strategy foolproof.

Here are the other screening parameters:

Price greater than or equal to $5 (as a stock below $5 will not likely create significant interest for most of the investors).

Average Daily Volume greater than or equal to 100,000 shares (if volume isn’t enough, it will not attract individual investors).

Here are 5 of the 15 stocks that passed the screen:

Energy Recovery, Inc. (ERII - Free Report) is a San Leandro, CA-based leading firm from the pollution control industry. The company manufactures devices that transform untapped energy into reusable energy from industrial fluid flows and pressure cycles. The company’s shares have rallied more than 92.4% year to date. This Zacks Rank #1 (Strong Buy) stock also has an impressive return profile with estimated 3-5 year earnings growth rate of 15%.

Macquarie Infrastructure Corp. (MIC - Free Report) owns, operates and invests in a diversified group of infrastructure businesses, which provide basic, everyday services in the U.S. and other developed countries.The company sports a Zacks Rank #1 and has a dividend yieldof 6.10%. Again, a Growth Style Score of ‘A’ and projected EPS growth of 184.9% for 2016 lend more potential to the stock.

Sanderson Farms, Inc. (SAFM - Free Report) is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products in the U.S. The company flaunts a Zacks Rank #1 and a VGM Score of A. Furthermore, Sanderson’s earnings estimates for the current year have improved 3.1% over the last 30 days.

Columbus, OH-based Worthington Industries Inc. (WOR - Free Report) is a leading value-added steel processor and manufacturer of metals products in the U.S. The company has a VGM score of “A” and sports a Zacks Rank #1. Over the past 30 days, the Zacks Consensus Estimate for fiscal 2017 and 2018 increased 18.9% and 20.5%, respectively, to $3.15 and $3.11 per share.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.Click here to sign up for a free trial to the Research Wizard today.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »

Resources

Client Support

Follow Us

Zacks Moblie App

Zacks Research is Reported On:

Yahoo

MSN

Marketwatch

Nasdaq

Forbes

Investors.com

Morningstar

Copyright 2018 Zacks Investment Research

At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1988 it has more than doubled the S&P 500 with an average gain of +25% per year. These returns cover a period from 1988-2017. Zacks Rank stock-rating system returns are computed monthly based on the beginning of the month and end of the month Zacks Rank stock prices plus any dividends received during that particular month. A simple, equally-weighted average return of all Zacks Rank stocks is calculated to determine the monthly return. The monthly returns are then compounded to arrive at the annual return. Only Zacks Rank stocks included in Zacks hypothetical portfolios at the beginning of each month are included in the return calculations. Zack Ranks stocks can, and often do, change throughout the month. Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations.

Visit performance for information about the performance numbers displayed above.